Future planning
Your future planning will never be complete until you learn to assess your long-term needs and take the appropriate steps. Everyone has long-range goals and requirements for the future, and plans to meet them when the time comes. But unless you know exactly what it is you will need and the financial requirements that area associated with those needs, it will be impossible to set the correct goals in order to meet the challenge.
Two of the main areas of consideration for future planning are education and retirement. Most households have a need to address both areas and success in the stock market can certainly enhance either.
Education: How many children (or grandchildren) will you need to help put through school? Obviously, the more children, the more money you will need to set aside. College costs continue to rise each year, with incoming students expected to pay more in tuition and fees every year. The average cost rose $1,398 per year, depending on the school and the location. Schools high in prestige can cost up to $35,000 or more per year, but 56 percent of students in four-year schools paid $9,000 or less. Regardless, anyone planning to send a child to college – or attend themselves – should expect to pay more.
It may be a wise planning move to funnel some of the money you earn into a 529 plan, which is an education savings plan operated by a state or educational institution. It is established to help families set aside funds for future college costs. They can be used to meet costs of qualified colleges throughout the country. Every state has at least one 529 plan, which is categorized as a prepaid plan or a savings plan. The savings works similar to a 401(k) or IRA by investing your contributions in mutual funds or similar investments. The prepaid plan allows an investor to prepay all or part of the costs of an in-state college education. Enrollment in a 529 plan is a simple as contacting a plan manager or a financial advisor in your state, and then filling out a few forms.
Retirement: Ask yourself what standard of living you expect to maintain when becoming retired. If you are planning a simple existence, the need for money will be less stringent than someone who expects to live a luxurious lifestyle. This is a decision you must make for yourself.
After determining the amount of money you'll need, talk to a planning expert and determine the best option for your long-term investment. Some prefer to use an Individual Retirement Account (IRA), either a traditional or Roth, while others may prefer to contribute to a 401(k) plan. Each plan has its own guidelines as far as contributions and requirements for withdrawals. Plans also have specific tax benefits, whether you pay the taxes up front or have them deferred until the time the funds begin to be withdrawn.
If you can see a big item lurking down the road, it's never too soon to begin the planning process. The time to pay for college or fund a retirement will arrive before you know it and it's critical to have the funds in place.
